FTBs massively under-estimate mortgage deposits: Aldermore

First-time buyers are under-estimating the cost of buying their first home by an average of £15,388, according to new research.

Not surprisingly this problem is particularly acute in London and the South East, where first-time buyers were under-estimating the deposit they would need by a staggering £75,000.

This research, part of Aldermore’s First Time Buyer Index, found that first time buyers in the capital were aiming to save an average of £48,000 for a deposit. But according to ONS figures, the actual deposit put down by first time buyers in London was £123,398. 

This isn’t the only region of the UK where there is a significant gap between what first-time buyers are saving and what they need for a deposit. In the South East first-time buyers estimate they need a deposit of £37,798, where figures show the average deposit paid by this group is £61,491 – a difference of more than £23,000. In the South West this ‘gap’ stands at £18,633.

Aldermore found that the problem was two-fold: not only did buyers underestimate the deposit needed to secure a mortgage, many also failed to factor in costs, such as solicitors’ fee and surveys. In addition, first-time buyers are failing to take into account the potential costs of a property purchase falling through. Almost half (47 per cent) of first time buyers who bought in 2017 have had a property purchase fall through – at the average cost of £1,306. 

Giving this mis-match between perception and reality, many prospective first-time buyers are taking longer than they planned to save for a deposit. This Aldermore research found that three-fifths of would-be house buyers said they planned to save for a deposit within five years. In reality, only half of these buyers reached their goal in this time, and one in seven (16 per cent) took over eight year to save sufficient sums. 

This doesn’t just have a financial impact, the research found that these problems were taking their toll emotionally. The First Time Buyer Index – carried out in the second quarter of 2017 – found that one in five first time buyers took three or more attempt to buy their home, and the process of buying a property caused so much stress more than one in three (35 per cent) were made ill as a result.

However, in some parts of the country first-time buyers are over-estimating what they need. In the North East first-time buyers estimate they need to save these his £32,662 for a deposit, when in reality the actual amount paid by first-time buyers in the region is £24,937. First-time buyers in the North West and Yorkshire and Humber are also over-estimating the deposit they need, albeit by smaller margins. 

Aldermore’s commercial director of mortgages, Charles McDowell says: “It is clear there is a divergence between perception and reality when it comes to the house buying process. This often means those looking to buy are under-estimating the associated costs as well as the time it could take to complete.

“Some have suggested that the Government plans to announce cutting stamp duty for first-time buyers in the Autumn Budget, a step we would welcome. As it stands first-time buyers are systematically let down by an overly complex, opaque and costly system.” 

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